Peter Thornhill 2021

Absolutely. But if you own a successful business, would you not use the capital you have for that business instead of investing in ETF? I would think your own successful business can beat ETF returns.

 

At some point people will drain off profits to make purchases of IP's or LIC's, ETF's which provide income streams. The key component is certainly to build the business first.

People do want to retire.....

 

That too..... they are happy to have a go at me...but hey....someone has to take the puss.

These same humans may sit next to me in a meetup and are quiet as church mice. .... me thinks they think I might skin them alive..........

 

So true..... a lot of people go broke....in business.... I see people are buying commercial properties from BAs....some have no understanding of the downsides of the economy tanks.....success is not always linear.

Not saying you can't make it business. But quite a few on here thought they would make mega bucks in business and it did not eventuate.

 

@TAJ answered it beautifully here:

But I will elaborate with a simple example. Say you own a small business with 10 employees, not counting you.

You pay each employee a salary of $100,000 and the business has a KPI that each employee on average generates revenue 3 x times their salary:- 1 x times to pay their salary, 1 x times to pay the operational costs of the business and 1 x times for the owner (to cover their drawings, to re-invest in the business, to invest outside the business, ...).

So each employee gets $100,000 and the owner gets $1,000,000.

A simple made-up example to demonstrate the point.

Once again, @TAJ answered it beautifully here:

Plus there is a little thing called diversification.

I know business owners who invested every last cent into their business. No property, no shares, minimal Super, ... only to lose the lot when the manure hits the fan.

Very true.

But I know people who bought their first IP, things went bad, ... and never bought another IP ever again.

I know people who bought their first share, the market crashed, ... and never bought another share ever again.

Same can happen in business. My first business (12 hour days, 7 day/week) produced us an income to just survive on but that was it; my second business broke even and we sold it for the same price we bought it.

My third and 4th businesses is where we were successful. In my eyes, the first two were a failure financially but they weren't a failure in total. When I bought the first business, I had no business knowledge, skills, experience, ... With the second, I learnt lessons from the first.

I firmly believe the third and 4th were successful because of the first and second. One has to change one's mindset - bit like Thomas Edison with the electric light - after 1,000 attempts that didn't work, a reporter asked him how did he feel about his 1,000 failures. Edison said that he hadn't failed 1,000 times, he now knows 1,000 ways that don't work. In other words, he is so much closer to success.

Same with businesses ...

Same with properties ...

Same with shares ...

The toughest thing to do with what some perceive as failure is to get up and re-shape the experience into a lesson learnt. I am speaking from experience.

 

For us we had the majority of our wealth in the business, but still had a PPOR and Share investments and maximised concessional super contributions.

The requirement or desire to reinvest earnings will depend on the nature of the business - in our case a business that was mildly cash flow negative which when growth was high, curtailed dividend payments. The reason for reinvestment was just working capital requirement, so when growth slowed we could pay dividends. I know of another business which was cash flow positive from day one, had no capex or inventory requirements (service business) and so there was no need for them to make significant reinvestment of earnings.

My plan was always “build to sell” as the business was just too stressful to run indefinitely, and I wanted to do other things. We sold in early 2020. Now our investments are well diversified, we are debt free and I sleep like a baby.

I would not recommend “business” as a path for most people.

 

Unfortunately as witnessed recently I know personally of a few instances where the business owners despite advancing age, deteriorating health and the business in good hands (sibling(s)) just can't let go. They have the inability to retire despite it sending them to an early grave! It negatiively effects all those close to him / her. Sad to see.

 

Oi, that's enough of that, thankyou. If you are referring to me, I'm never quiet, and my skin is way too tough for me to think you'd even try.

 

Hi, I've tried to look in the previous Peter Thornhill forums but I cant see anyone asking / providing similar advise, I'm hoping someone can advise correctly for me please. I've started using a margin loan as per Peter Thornhil - 50% LVR, buy shares, use dividends to pay the interest and paydown, then rinse and repeat each year (increasing amount each year). Is it smarter to 1) pay it down over the year as principle and interest (like a mortgage) and possible use any available loan if market takes a tumble, or 2) just leave the whole loan there paying full interest until year ends, and save the amount you would paydown over the year in another account. For tax reasons 2nd might be best, but as just starting out, its only a small loan. Trying to get planned correctly before using larger amounts. TIA

 

Nah..... not ya......you would never fit the quiet as a church mice category.

I am talking about the great unwashed who are brave keyboard warriors...and put up aggressive posts... but won't say a peep at meet-ups.

 

Have you looked into a product called NAB Equity Builder? It's much safer than a margin loan as banks won't make margin calls (at least that's what's advertised). Plus the rates are much lower than a margin loan. There's info on this forum about it.

 

@Jarlaxle only comment is that you should test what 50% LVR looks like in the kind of drawdowns we’ve seen historically, you might want to revisit running a static LVR at that level.

As an example, running static 50% LVR with portfolio limit 70% LVR you are in margin call at only 29% drawdown.

At static LVR 30% you can handle 57% drawdown.

 

Thanks, I've already got a small one with Westpac, but was looking at possible going to NAB Equity when looking at larger amounts, especially if you all think the interest and principle would be better way.

 

Thanks Falcon, it's something to consider, also this is one of the reasons to pay down the loan during the year, not have it sit idle in another account until the end of the year. Less stress, but less tax savings...Probably less stress the better option

 

With any investment, the tax implications are certainly worth consideration; but under no circumstances should they be the focal point behind the investment.
Remembering if you are paying a lot of tax you are generally making a lot of money.

 

I would never use margin lending seeing what happened to my colleague’s relative during the GFC. The margin calls came so quickly he literally borrowed quick cash from a few family members.

 

Under no circumstances will I ever endorse stocking up on these as it is illegal but how's your supply of anti-depressants?

Could come in handy when the brown matter hits the air-con; margin loan, no margin loan or NAB whatchamacallit.

 

I wish...

 

Don't see how you think it's illegal, it's a loan, and many places do it...thus legal.
Also I'm following PT, who suggests it (although he uses homeloans personally) to increase your future potential.
My query was basically related to best situation for tax considerations with the pay off of the loan annually.